Miles to go before India gets Pak's MFN status

It would be quite a strenuous journey for India before it obtains the much-awaited most favoured nation (MFN) trade status from Pakistan next year. India would not be allowed to immediately start exporting the remaining tariff lines yet, even as Pakistan's Cabinet has given its approval to shift towards a negative list containing 1,209 items.

Last month, Pakistan had announced it would shift, from a positive-list regime to a smaller negative list for trade with India to normalise trading relations between the two countries.

This technically means that the moment Islamabad notifies the decision, its eastern neighbour would be allowed to export the around 6,000 remaining items to Pakistan.

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That, however, would not be the case. According to a senior Pakistani government official, the phasing out of the negative list would be done in a phased and gradual manner, and India would not be allowed to export the 6,000-odd items at one go.

The notification would be issued by the Federal Board of Revenue of Pakistan within a fortnight. The negative list would come into effect from July 1, 2012, which also marks the beginning of Pakistan's new financial year.

That list would be phased out in a "gradual and phased" manner, a senior Pakistani official said on Monday. "It will be presented as part of the finance bill," he said.

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The Pakistan industry "needs to be assured of the fact that India is ready to diminish its non-tariff barriers that restrict our export to India", the official said, and added, "We are maintaining the negative list to protect our domestic industry."

For long, Pakistan had been complaining of several non-tariff barriers that India maintains on imports from that country. These include stringent tests, complex classification of codes, strict import licensing procedures and requirement of special labelling that leads to delay and complex paperwork.

According to the official, Pakistan's negative list includes textiles, iron and steel products, leather items, pharmaceutical products, automobile spare parts and plastics.

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On its part, Islamabad has also asked New Delhi to sign a bilateral trade deal so that its exports would not face high binding rates as prescribed under the rules of the World Trade Organisation. But India first wants normalisation of trade with Pakistan before signing a separate bilateral arrangement with it.

Currently, Pakistan has been maintaining a positive list that contained around 1,950 items that were permitted to be imported from India. Rest all are under the negative list, implying that those items are not allowed to be imported from Pakistan.

The granting of an MFN status implies lowering of tariffs and customs duties for the products trade between them. Once India obtains the MFN status from Pakistan, all items other than those in the sensitive list of the South Asia Free Trade Agreement (Safta) would get preferential access at peak tariff levels of 5 per cent by the end of 2012.

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So, even if the negative list is scheduled to be phased out by December 31 this year, an MFN status might not apply to India as yet.

Pakistan has been also facing severe criticism from several jihadi groups, which are against granting India such a status.

Another such outfit, Jamaat-ud-Dawah, has threatened large-scale protest at the Wagah border if trade with India is normalised. Its activists insist on solving the Kashmir dispute first.

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India had granted Pakistan an MFN status 1996. Even so, imports from that country has remained significantly low compared to India's export to Pakistan.

According to data by Ministry of Commerce and Industry, the last five years have seen imports from Pakistan having remained within the range of $250-$300 million.

On the contrary, exports to Pakistan from India have more than doubled. In 2010-11, India-Pakistan trade stood at $2.6 billion. Both sides have set a target of $6 billion worth of bilateral trade by 2014.